BLACK GOLD!! OIL! Since 1901, it’s been a love-hate, up-and-down relationship between society and the oil and gas market. With all the volatility in the oil market, I let myself do some research on the topic with a financial/investing spin.
“There’s a saying in Midland that whenever you strike oil you go out and get a boat, a plane, and a mistress, and when you lose your money you get rid of them one by one, starting with the mistress. No one mentioned anything to me about mistresses, but several people I met in Midland had been forced to sell their boats and planes. No one seemed ashamed about having lost money: it was like catching a cold–common and widespread and out of your control.”
“What do you think is the most important thing that investors do?
Keep their expenses low? Hire a superstar manager? Avoid taxes? Have perfect timing? They’re all significant, but arguably the very most important decision is choosing what kinds of things to invest in. Asset class selection is the fancy name for this.
(Actually, setting aside some money to invest in the first place is the absolute most essential step. But if you don’t do that, then you’re not even an investor.)
According to the experts, more than 90% of your ultimate investment return depends on your choices of asset classes. (This assumes that you invest money and leave it invested. If you move in and out of your investments, then your results are totally unpredictable.)”
HERE ARE THE Web Crawl SITES (my summary/notes are below the links):
Top 100 U.S. Oil and Gas Fields, Mar 2015: http://www.eia.gov/naturalgas/crudeoilreserves/top100/pdf/top100.pdf
Top 100 Oil and Gas Fields of 2009:
Stacked Laterals and Zipper Fracking:
Stacked laterals with Pioneer Resources (PXD) in the Spraberry/Wolfcamp plays in Midland:
Top 5 oil&gas producers in Permian Basin, and break-even numbers:
Historical spot prices of oil/gas (WTI and Brent), since 1986:
Cost of producing oil in different plays/regions:
Natural gas facts and figures and maps (worldwide), production and reserve numbers:
ARTICLES PREDICTING THE OIL BOOM BUST:
Number of producing gas wells, by state (historical data):
Investor’s guide to US drilling (conventional vs. unconventional):
Crude oil production by state, by year (historical data:
US Field Production of Crude Oil, thousands of barrels per day (historical data):
Largest oil and gas producers in Texas, 2014:
ANTI shale/fracking website:
Petroleum consumption by year, by country (historical data):
SATURN MINERALS AND BAYHORSE SILVER INC (Saskatchewan Williston basin e&p companies about to drill their first well in Bannock Creek):
Articles that are PRO conventional, vertical drilling:
Top 10 oil producers in Permian:
Supply-Demand of Global Oil Market and How OPEC Affects Prices:
From January 2011 through November of 2014, many US O&G producers have been making a 25-200% profit on oil. Average break even price for the most efficient fracking producers is around $40, with the overall average being $65. Now that WTI crude oil is at $33/barrel (as of December 2015), there is not a company I know of that can profitably drill horizontal, unconventional wells (fracking) in any Texas shale play. The outlook for the price of crude oil going up to the break-even +$40/barrel level in 2016 is possible, but the profit margins will be meager for the best producers and still negative for most fracking companies.
Conventional wells are still profitable in plays where there is light crude at prices as low as $25/barrel, and they are profitable in any oil play at an average price of $40/barrel. But yet, the annual average of US field crude oil production per day has still been increasing YoY since 2008, and is increasing at an exponential rate. This increase is due mostly to the fact that fracking companies already invested the capital in drilling the unconventional wells, so they might as well keep the wells operating and take a $30 loss than shut them down and lose all the money invested (approximately $6-12 million per well) to drill/complete the well and secure the land rights. For example, one of the top 5 largest oil and gas production companies in Texas, Devon Energy (DVN), has experienced a 100% loss in revenue per barrel of oil from Sept 2014 to Sept 2015, but has increased its oil production output by 1% over the same period. Also, companies like Devon are taking advantage of dirt-cheap energy services costs (their operational costs Q4 2015 were down 9%) and then they hope the price of oil will go up enough for them to rack up production quickly.
The behavior of oil prices depends not only on current supply and demand, but also on projected future supply and demand. OPEC adjusts member countries’ production targets based on current and expectations of future supply and demand. Estimating future supply and demand, however, is especially challenging when market conditions are uncertain and are changing rapidly. There can also be significant lags in OPEC production target adjustments in response to market conditions, which also can impact prices
Conventional drilling is cheapest (i.e. almost all of Saudi Arabia oil). The required conventional vertical holes cost 350,000 – 700,000 CAD per hole (ten times cheaper than a horizontal frack well).
Unconventional drilling is more expensive ($58-72 a barrel to break even). This includes horizontal drilling, fracking, tar sands (i.e. almost all of the Texas oil industry growth over the past several years). One way for investors to hedge their bets is to look away from the shale cash cows and towards under-explored conventional plays that don’t require expensive horizontal drilling or fracking for extraction. Going vertical is the safer bet, and there are two key areas that stand out: The all-time favorite Permian Basin in West Texas, and the prolific and still under-explored Saskatchewan province in Canada.
In 2012, 45,468 wells were drilled in the US, of which 28,354 started producing in the same year. Canada brought 3,450 wells online in the same year. In the rest of the world, just 3,921 wells were brought online.
US had been in an oil production downtrend since the 1980’s until new drilling techniques (e.g. stacked laterals, zipper frac, fracking, horizontal drilling) caused the O&G industry to take off in 2008/2009. US oil production increased for 4 years straight